10 KPIs for Effective Inventory Analysis

inventory management system.

10 KPIs for Effective Inventory Analysis

Every business’s goal is to keep its customers happy and boost sales. Maintaining proper inventory is one way to achieve this. Businesses must strike a fine balance between having too many products and too few. 

But, how do you know when to restock inventory when there are hundreds of them? 

The answer is tracking KPIs (key performance indicators) with an effective inventory management system. This blog will cover the 10 crucial KPIs that give you precise control over stock levels.  

10 KPIs to Measure Performance Using Inventory Management System 

 Consider the below indicators that matter the most.  

1.Inventory Turnover Rate 

Inventory turnover rate is an important KPI as it tells the number of times a company sells and restocks a product over a specific time.  

Note that a high turnover rate shows that a product is selling fast. It is a good indicator and helps reduce the holding costs. On the other hand, low turnover means a stock is moving slowly.  

2.Rate of Return 

The rate of return helps track the percentage of items customers return. For instance, if customers returned 12 out of 100 orders, your return rate will be 12%. 

You can easily track this crucial KPI using an inventory management system. Keeping this KPI as low as possible can help improve customer satisfaction. However, if the rate of return is high, you can analyse the potential reasons.   

3.Sell-Through Rate 

A sell-through rate (STR) shows the percentage of inventory sold and the amount received. Tracking STR can help you understand sales data, adjust your goals, and maintain a smooth supply chain.   

4.Average Inventory 

The average inventory shows the inventory levels you have at a specific time. Keeping a smooth flow of inventory helps avoid overstocking and understocking issues.  

It also shows the stock in and out based on your business needs. 

5.Lead Time 

Lead time is a supplier-centric KPI that helps manage inventory and the supply chain. It measures how long your suppliers take to deliver an order from the moment you place it.   

You would want to keep this KPI as low as possible to get orders quickly. Low lead time also helps reduce the risks of stock-outs. Using this KPI, you can plan your inventory better and restock orders in time.  

6.Inventory Accuracy 

Inventory accuracy involves verifying that your internal data is accurate. Tracking this KPI ensures that the entire inventory management system runs smoothly. 

It indicates mismatched data on the actual quantity and what got recorded. With inventory accuracy, you can move unsold items to reduce operational costs. 

7.Stock to Sales Ratio 

This ratio defines your inventory’s value against the sales value for a specific period. Low inventory-to-sales ratios are often better, but your goal should be to achieve a healthy stock-to-sales ratio for your business.   

8.Inventory Shrinkage 

Inventory shrinkage leads to a drop in profits. It happens when you have less inventory than you should. It means that, for some reason, your items go missing before selling. 

Tracking this KPI is essential to avoid unwanted losses using a proper inventory management system. 

9.Holding Cost 

If some products are not selling, you must store them and keep them safe. This is an additional cost that businesses bear. The holding cost KPI helps measure this cost.  

Many people might not realise it, but they pay money to hold those items, making this a crucial KPI to track. You can find where to improve your inventory management system and cut costs using this KPI.  

10.Order Cycle Time 

This metric shows how well you are managing orders. It indicates the average time it takes to complete an order. The shorter the order cycle time, the more responsive you are at fulfilling customer orders. 

Ending Thoughts   

Monitoring inventory data and using strategies to improve product flow is vital. The above KPIs can help retailers create the best inventory management system for overall business success.  

To track all these KPIs, you can use top-notch inventory management solutions from Quinta. Designed to provide deeper insights into your inventory trends, these tools help increase efficiency.  


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